Japan- Yen's slump fails to stem exodus of factories from Ja...| MENAFN.COM

Monday, 24 January 2022 07:53 GMT

Japan- Yen's slump fails to stem exodus of factories from Japan

(MENAFN- The Peninsula)  Japanese Prime Minister Shinzo Abe promises that Abenomics will revive the nation's industrial might. For Takumi Tanaka at auto-parts maker Uchida Co, times are worse than after the 2011 earthquake. Tanaka, managing director of a company founded in 1955, whose 94 employees supply Honda Motor Co. with parts moulds, is contending with higher costs after a 17 percent drop in the yen in the past nine months pushed up the price of imported energy and metals. At the same time, he's under pressure from clients to build factories near their overseas plants. "We see very little benefit" from Abenomics, Tanaka said in Miyagi Prefecture, where two of the company's three factories are located. "Even today, we are being asked to build plants in Vietnam, Thailand and Indonesia." While the yen's drop is giving exporters a boost as the central bank increases the money supply to tackle deflation, the currency benefit isn't enough to reverse the effect of decades of stagnant growth that forced companies to seek expansion abroad. The success of Abenomics may rely as much on the health of the global economy as on fiscal and monetary stimulus at home. With the currency rebounding 8 percent since May 28, Abe is under pressure to implement stronger incentives for companies to stem the migration of production to faster-growing markets. Japan's overseas units almost tripled sales from 2002 to 2012 and nearly doubled employees to around 15 million people, Trade Ministry data show. Japanese manufacturers were forecast to make a record 33 percent of their products abroad in the year through March 2013, up from 14 percent in fiscal 1989, according to a December survey by the Japan Bank for International Cooperation. In the next three years, the lender predicts the proportion will reach 38 percent. Sumitomo Metal Mining Co, Japan's largest nickel producer; JFE Holdings Inc, the nation's second-biggest steel maker; and Sharp Corp, the country's No. 3 maker of televisions, are among companies building or evaluating new operations abroad, swelling an exodus that almost tripled dollar revenue from Japan's overseas units in the decade through 2012, according to trade ministry data. The profit-to-sales ratio for foreign affiliates was 5.9 percent, compared with 3.3 percent for domestic producers in the year ending March 2012, government data show. The trend to build factories in destination markets helps explain why the yen's slump is doing less to boost the economy than in the past. Japan exported 5.8 trillion yen ($62bn) of goods in April, the same amount as in February 2006, when the yen was 17 percent stronger, and Abe was chief cabinet secretary. The effect of the weak yen will be felt on exports from now on, Bank of Japan Governor Haruhiko Kuroda said on June 11, after deciding at a two-day meeting not to alter the central bank's plan for monetary stimulus. In addition to the gain from booking profits in yen from overseas units, shipments from Japan are forecast to rise around 5 percent next year, according to lenders including JPMorgan and Bank of America. While exports are recovering after declines in nine out of 12 months last year, the gains may be influenced more by the world economy. The International Monetary Fund in April pared its 2013 global growth outlook to 3.3 percent from 3.5 percent. History indicates a diminishing boost to exports from a weaker currency. When the yen fell 20 percent in seven months in 1995, monthly exports grew 8.4 percent on average in the ensuing three years, even as the domestic economy hardly expanded. A lower yen couldn't save Japanese trade in 2001 as the United States tipped into recession and exports tumbled 5.2 percent. Shipments picked up in 2002 and 2003 as the global economy rebounded, despite the yen embarking on a three-year climb. Today, the trade-off between a cheaper yen, higher raw material costs and global demand is illustrated by Mitsui Chemicals Inc. Operating profit at the company rises by 600m yen with each 1 yen deprecation as the value of goods sold in dollars and earnings booked at overseas units are higher when translated into yen, said Yuri Matsunaga, a company spokesman in Tokyo. At the same time, the cheaper yen raises the import price of raw materials such as naphtha. The Tokyo-based company lost 10.3bn yen in the year ended March. This year it plans to open a factory in Singapore to make material for eye-glass lenses, and a textile plant in Tianjin, China. To help Japan's industry, Abe has promised to loosen business regulations and increase government support as part of the "third arrow" of his three-pronged strategy to end deflation, following fiscal and monetary stimulus. Sumitomo Metal is considering building a 30bn yen smelter abroad by 2021, said Masashi Takahashi, a company spokesman. Sharp's plan to open a plant in Karawang, Indonesia, by the end of 2013 to make washing machines and refrigerators also hasn't been affected by the currency, said spokeswoman Miyuki Nakayama in Tokyo. Still, the yen's decline has spurred some companies to consider bringing production home. Panasonic Corp will decide around this autumn whether to move some fabrication of household equipment back to Japan if the yen falls to 105-107 versus the dollar, Kazunori Takami, head of the company's appliance unit, said.

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